Summary
- Korea’s Ministry of Economy and Finance released its 2026 Tax Law Amendment Proposal on 3 August 2026, packaging a VAT clarification for cross-border services together with a broad Pillar Two and international-tax overhaul.
- For VAT, the proposal confirms that where a Korean permanent establishment issues a tax invoice for a service, the transaction is attributed to that PE, so the Korean recipient does not apply the reverse charge and the PE reports and pays the VAT.
- Most measures are expected to take effect from 1 January 2027, subject to National Assembly approval.
Extended article
On 3 August 2026, Korea’s Ministry of Economy and Finance (MoEF) unveiled the 2026 Tax Law Amendment Proposal, a wide-ranging package for multinational enterprises operating in or investing into Korea. Alongside domestic production tax credits, CFC-threshold changes and Pillar Two safe harbours, the proposal contains a targeted VAT clarification for service transactions involving foreign companies.
Under current practice, when a Korean company receives services from a foreign company that has a permanent establishment (PE) in Korea, the Korean recipient must in principle account for VAT under the reverse-charge mechanism to the extent the transaction is not attributable to the Korean PE. The proposal removes the uncertainty by providing that, where the Korean PE issues a tax invoice for the supply, the transaction is deemed attributable to that PE. As a result, the Korean recipient no longer accounts for VAT under the reverse charge, and the PE becomes responsible for reporting and paying the VAT.
The wider international-tax elements include incorporation of the OECD Side-by-Side Package, a reduction of the CFC effective-tax-rate threshold to below 15%, and inclusion of the qualified domestic minimum top-up tax (QDMTT) among taxes eligible for foreign tax credits. The proposals were announced on 3 August 2026 and are subject to National Assembly approval, with most measures expected to apply from 1 January 2027.
Sources: Samil PwC – Tax News Flash (2026.8.4); oecdpillars.com – Korea’s 2026 Tax Reform Proposal.
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